New Rules Make It Easier to Get an FHA Mortgage for a Condo

by Steve CookMarch 22, 2017

If you are in the market for a condo and like the idea of getting FHA financing with a 3.5 percent down payment, your timing is perfect. You will find a larger choice of condos in buildings that will qualify for FHA financing this year than you would have found if bought a year ago.

Not all condos qualify for FHA loans. Historically, certain levels of owner-occupancy in a building is required to approve it for FHA financing to purchase condos in that building. Before 2008, FHA required as many as 80 percent of units in a building be occupied by owners, not rentals or commercial space. The threshold was lowered to 50 percent in 2009, yet the regulation still had a chilling impact on condo sales. FHA condo loans declined from 80,000 to 90,000 mortgages per year from 2000 to 2009, and to 22,800 in 2014. Through August 2015, condos represented barely 2.8 percent of total FHA loan volume.
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Last July, Congress passed legislation ordering FHA to loosen up on its condo restrictions. In October, FHA lowered the owner-occupied ratio from 50 to 35 percent, making thousands of buildings eligible for FHA financing.

“While having too few owner-occupants can detract from the viability of a project, requiring too many can harm its marketability,” the FHA said in a statement. “It is FHA’s position that owner-occupants serve to stabilize the financial viability of the projects and are less likely to default on their obligations to homeowner associations than non-owner occupants.”

In addition to the liberalized condo-to-commercial ratio, the agency announced three other changes designed to make it easier to finance a condo with an FHA loan. FHA is allowing single investors to buy up to half the units in a project, up from 10 percent previously. That move is as likely to help suburban and urban markets as resort areas.
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The other two changes touch on delinquent homeowner association dues and condo board certification. The FHA says it will okay loans on projects in which 15 percent of the homeowners are 60 days late on their HOA dues. That represents an easing from the previous 30-day delinquency limit.

HUD also intends to allow FHA to grant spot approval to individual units in condominium complexes that haven’t been certified. Under HUD’s direction, FHA also plans to streamline its certification process. Condo associations will no longer, for example, have to start the application process virtually from scratch. A complex also will now have to be re-certified every three years, instead of the current two years.


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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.

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